Rolls-Royce, the FTSE 100 power systems manufacturer, yesterday announced plans for £1bn in share buybacks, a move that saw its stock jump by more than eight per cent.
The buyback – the company’s first since it was privatised in 1987 – will be financed through the proposed divestment of its gas turbine energy business to Siemens, agreed in May.
Rolls-Royce intends to receive a total of £985m in cash for the deal that includes technology collaboration between the two companies.
The UK engineering giant was on the hunt to acquire Wartsila, the Finish engine maker, earlier this year.
After the deal fell through, Rolls warned investors that its projected group revenue and profit would be flat in the medium term. US and UK government reductions in defence spending were also major contributors to the lowered outlook.
The company will hope to reassure shareholders that the buyback – equivalent to almost five per cent of its £19bn market capitalisation – signals an intent to return to non-acquisition based growth.
Rolls-Royce also announced yesterday that capital expenditure would fall 0.9 per cent to four per cent over the next five years.
Wide-body aircraft production was projected to grow to 4,000 units by 2023 on the back of exiting narrow-body production in 2011.
“I’m confident that we have sustainable growth, but that does not mean year-after-year consistent growth, it means long-term sustainable growth,” chief executive John Rishton said.